Steemit Crypto Academy Contest / S8W2 - What are Stablecoins?
Use your own understanding to explain what are stablecoins? And how did you manage to ensure a stable price? |
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Understanding cryptocurrency took a lot of time for me to get to achieve. I did a lot of study on types of cryptocurrency and how to use them. One of those types that struck my interest was stable coins. I did more research on it and I just loved the reasons behind the invention of stable coins.
Stable coins just like the name implies are stable tokens or currencies that remain the same everytime. Most times it is pegged to fiat currencies or gold. In the real sense it is an equivalent of the fiat currency it is tagged to. Example the Tether (USDT) is tagged at a 1:1 ratio with the United state dollars, meaning that there are of the same value.
Why were stablecoins created and how are they useful? |
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Other crypto currencies are volatile. The volatility rate for other tokens is on the high. For instance, the bitcoin was known to increase from a very small amount in price to a high amount in just a matter of months. This high volatility isn't really good for traders. So this brought about the creation of stable coins, to bring about the stability in prices of coins. This stable coins are backed by stable currencies like the fiat, so that prices would be predetermined and stable.
What are the most popular stablecoins? Which do you use more and why? |
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The following are the most popular stable coins, there are:
Tether USDT; which is the most popular
USDC - United States Dollars coin
BUSD - Binance United states dollars
Terra
DAI
The one I have used more is the USDT, because it is popular and safe.
Can stablecoins lose their stability? If the answer is yes, then cite some cases with an explanation of the reasons of that. |
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Yes. I entered the crypto world last year, and I read the news of Terra USD collapsing and losing its value last year, thereby causing a huge lose to a lot of holders of the coin. Stable coins are known to be tagged or pegged to fiat currencies or gold but terra wasn't pegged to either of these, but was pegged to Luna, so when the currency went down, it went down also.
What are the advantages and disadvantages of stablecoins compared to traditional cryptocurrencies? |
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The advantages of stable coins are:
- The prices are stable over time.
- They are safe to invest in, because there's no fear of the price going up or down.
- They are less volatile too as compared to other currencies.
The disadvantages are;
Since it is pegged to a fiat currency, there are lots of regulations guiding it, reasons Cryptocurrency was introduced was to reduce this regulations.
Stable coins require third party.
Stable coins give that stability to the Cryptocurrency world, though it is not profiting like the other currencies but it gives a balance.
Thanks for going through my blog
I invite @davidmarkgeorge, @imohmitch and @inemesitjustus to participate.
A lovely and intresting article from you friend on the topic of stablecoins.
The issue of volatility is what I would regard as the major cause of creating stablecoins. For instance, image a service being offered is worth $3.5 and after few minutes of making the trade we see the value of that service becoming a $2.5 worth of asset.
This would cause frustration and grief among Investors at all time, because the value of a service can't be maintained. But with the existence of stablecoins, Investors could make trades and be rest assured that their values are 90% secured and stable.
Of a truth, regulations are usually attached to must stablecoins, as they are pegged to Central currencies and services. Decentralized is supposed to be one of the main feature of a Cryptocurrency, meaning stablecoins are down in transparency.
Thanks for sharing and goodluck in this contest friend.
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Most stablecoins are safe but they can all lose their peggings even when it is not their fault. A good example is USDC which just got unpegged from the US Dollar falling to $0.88 because of a third-party failure. Hopefully, it gets back to $1 on monday since it is a working day.
Uno de los eventos que mas causa preocupación en el mercado criptográfico tradicional, es la marcada volatilidad; una de las razones de la creación de las monedas estables, para generar cierto clima de tranquilidad; sin embargo, la regulación y necesidad de intermediarios constituyen una desventaja. Saludos y éxito en tu entrada.
We support quality posts, and good comments anywhere, with any tags.
Try following the rules and write a little bit deeper, then you would score higher friend. I admire your handwork.